FORM 10-K

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF

THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 2006

[ ]  TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)

OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from _______________ to _______________

Commission file number 0-827 

EMPIRE STATE BUILDING ASSOCIATES L.L.C. 

(Exact name of registrant as specified in its charter)

New York 13-6084254

State or other jurisdiction of (I.R.S. Employer

incorporation or organization Identification No.)

60 East 42nd Street, New York, New York 10165

(Address of principal executive offices) (Zip Code)

Registrant's telephone number, including area code (212) 687-8700

Securities registered pursuant to Section 12(b) of the Act:

None

Securities registered pursuant to section 12(g) of the Act:

$33,000,000 of Participations in LLC Member Interests

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes  [x]  No [ ]

Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Act) Yes [  ]  No [ X ] .

The aggregate market of the voting stock held by non-affiliates of the Registrant:  Not applicable, but see Items 5 and 10 of this report.

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of Registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.  ___

PART I

 

Item 1. Business.

(a) General

Registrant was originally organized onJuly 11, 1961 as a general partnership. On October 1, 2001, Registrant convertedfrom a general partnership to a limited liability company under New York law andis now known as Empire State Building Associates L.L.C. The conversion does notchange any aspect of the assets and operations of Registrant other than toprotect its investors from any future liability to a third party. Through April16, 2002, Registrant owned the tenant's interest in a master operating leasehold(the "Master Lease") on the Empire State Building (the "Building"), located at350 Fifth Avenue, New York, New York. On April 17, 2002, Registrant acquired,through a wholly-owned limited liability company (Empire State Land AssociatesL.L.C.), the fee title to the Building, and the land thereunder (the "Land")(together, the "Real Estate"), at a price of $57,500,000, and obtained a$60,500,000 first mortgage with North Fork Bank (the "Mortgage") to finance theacquisition and certain related costs. The initial term of the Master Leaseexpired on January 5, 1992. On January 30, 1989, Registrant exercised its firstof four 21-year renewal options contained in the Master Lease and extended theMaster Lease through January 5, 2013. 

Registrant does not operate the RealEstate. It subleases the Real Estate to Empire State Building Company L.L.C.(the "Sublessee") pursuant to a net operating sublease (the "Sublease") with aterm and renewal options essentially coextensive with those contained in theMaster Lease. On January 30, 1989, Sublessee elected to renew the Sublease for aterm commencing January 4, 1992 to January 4, 2013.

Registrant's members are Peter L. Malkin,Anthony E. Malkin and Thomas N. Keltner, Jr. (collectively, the "Agents"), eachof whom also acts as an agent for holders of participations in his respectivemember interest in Registrant (the "Participants"). 

Sublessee is a New York limited liabilitycompany in which Peter L. Malkin is a member and entities for Peter L. Malkin'sfamily members are beneficial owners. All of the members in Registrant holdsenior positions at Wien & Malkin LLC (the "Supervisor"), 60 East 42ndStreet, New York, New York, which provides supervisory and other services toRegistrant and to Sublessee. See Items 10, 11, 12 and 13 hereof for adescription of the ongoing services rendered by, and compensation paid to,Supervisor and for a discussion of certain relationships which may posepotential conflicts of interest among Registrant, Sublessee and certain of theirrespective affiliates.

As of December 31, 2006, the Building was84% occupied by approximately 695 tenants who engage in various businesses,including the Boy Scouts, the YMCA, the practice of law and accounting, ladies'and men's apparel, and ladies' and men's shoes. Registrant does not maintain afull-time staff. See Item 2 hereof for additional information concerning theReal Estate.

 

(b) The Lease and Sublease

The annual rent payable by Registrant toits subsidiary under the Master Lease is $1,970,000 from January 5, 1992 throughJanuary 5, 2013 and $1,723,750 annually during the term of each renewal periodthereafter.

Sublessee is required to pay annual basicrent (the "Basic Rent") equal to $6,018,750 from January 1, 1992 through January4, 2013, and $5,895,625 from January 5, 2013 through the expiration of allrenewal terms. See Item 2. Sublessee is also required to pay Registrantadditional rent of 50% of Sublessee's net operating profit, as defined in theSublease, in excess of $1,000,000 for each lease year ending December 31("Additional Rent"). 

Additional Rent income is recognized whenearned from the Sublessee, at the close of the year ending December 31; suchincome is not determinable until the Sublessee, pursuant to the Sublease,provides the Registrant with an audit report from a certified public accountanton the Sublessee's operation of the Real Estate. The Sublease requires that thisreport be delivered to Registrant annually within 60 days after the end of eachsuch fiscal year. Accordingly, all Additional Rent income and certainsupervisory services expense are reflected in the fourth quarter of each year.The Sublease does not provide for the Sublessee to render interim reports toRegistrant. See Note 3 of Notes to the Consolidated Financial Statements filedunder Item 8 hereof (the "Notes") regarding Additional Rent payments bySublessee for the fiscal years ended December 31, 2006, 2005 and 2004. There wasAdditional Rent of $18,791,329 for the year ended December 31, 2006.

 

(c) Competition

Pursuant to tenant space leases at theBuilding, the average annual base rental payable to Sublessee is approximately$34 per square foot (exclusive of electricity charges and escalation). Theasking rents for the building range from $42 to $52 per square foot.

(d) Tenant Leases

Sublessee operates the Building free fromany federal, state or local government restrictions involving rent control orother similar rent regulations which may be imposed upon residential real estatein Manhattan. Any increase or decrease in the amount of rent payable by a tenantis governed by the provisions of the tenant's lease.

 

Item 2. Property.

On April 17, 2002, Registrant acquired,through a wholly owned limited liability company (Empire State Land AssociatesL.L.C.), the fee title to the Building, and the land thereunder, at a price of$57,500,000, and obtained a $60,500,000 first mortgage with North Fork Bank tofinance the acquisition and certain related costs. The Building, erected in 1931and containing 102 stories, a concourse and a lower lobby, occupies the entireblockfront from 33rd Street to 34th Street on Fifth Avenue. The Building has 72passenger elevators and 4 freight elevators and is equipped with airconditioning and individual air handling units. The Building is subleased toSublessee under the Sublease which expires on January 4, 2013 and contains three21-year renewal options. See Item 1 hereof for a description of the terms of theLease and Sublease.

The Real Estate was originally carried inthe financial statements at a total cost of $60,484,389, consisting of$57,500,000 for the purchase price paid to the seller, $752,022 for acquisitioncosts, and $2,232,367 representing the unamortized balance of the cost of theMaster Lease on the date the Real Estate was acquired. The cost of the Land wasestimated to be 35.63% of the total cost of the Real Estate, and the Building,64.37%. Under the terms of the contract of sale, the deed contains language toavoid the merger of the fee estate and the leasehold, although on a consolidatedfinancial statement basis the Registrant incurred no leasehold rent expenseafter acquiring the Real Estate.

The mortgage matures on May 1, 2012.Monthly payments under the mortgage are interest only at a fixed annual rate of6.5% through maturity. Payments commenced on June 1, 2002, except thatshort-term interest from the closing until April 30, 2002 was due on May 1,2002. The mortgage may be prepaid at any time after 24 months with the paymentof a premium equal to the greater of (a) 1% of the amount prepaid and (b) anamount calculated pursuant to a prepayment formula designed to preserve thebank's yield to maturity. The mortgage loan is secured by a lien on the RealEstate and Registrant's leasehold estate under the Master Lease of the RealEstate.

Restricted cash at December 31, 2006includes an interest-bearing account held at North Fork Bank pursuant to theterms of the Mortgage, to be used monthly to satisfy a portion ($166,167) ofRegistrant's mortgage interest obligation. On March 28, 2007, Registrantdeposited an additional $2,000,000 into this restricted account under the sameconditions and will continue to do so annually hereafter.

The Building is being depreciated on astraight-line basis using an estimated life of 39 years from April 17, 2002.Mortgage financing costs, totaling $1,796,287, are being amortized ratably overthe term of the mortgage.

Item 3. Legal Proceedings.

The Property of Registrant was thesubject of the following material litigation: 

Wien & Malkin and Peter L. Malkin, amember in Registrant, were engaged in a proceeding with Sublessee's formermanaging agent, Helmsley-Spear, Inc. commenced in 1997, concerning themanagement, leasing, and supervision of the property that is subject to theLease to Sublessee. In this connection, certain costs for legal and professionalfees and other expenses have been paid and incurred by Wien & Malkin and Mr.Malkin, and certain costs for filings to terminate such proceeding may beincurred in the future. Wien & Malkin and Mr. Malkin have represented thatsuch costs will be recovered only to the extent that (a) a competent tribunalauthorizes payment or (b) an investor voluntarily agrees that his or herproportionate share be paid. Accordingly, Registrant's allocable share of suchcosts is as yet undetermined, and Registrant has not provided for the expenseand related liability with respect to such costs in its consolidated financialstatements included in this Form 10-K. As a result of the August 29, 2006settlement agreement which included termination of this proceeding, Registrantwill not recognize any gains or losses from this proceeding other than thepossible charges for the aforementioned fees and expenses.

The August 29, 2006 settlement agreementterminated Helmsley-Spear, Inc. as managing and leasing agent at the property asof August 30, 2006. CB Richard Ellis has been engaged as the new leasing agent,and Sublessee self-manages the property. The $1,834,000 portion of the contractsettlement payment funded from Sublessee's reserves has been deducted as anexpense in computing Additional Rent income for 2006, so that Registrant haseffectively borne one-half of Sublessee's contract settlement payment expense,or $917,000.

In January 1998, Irving Schneider, who isone of the controlling principals of Helmsley-Spear, has no record or beneficialinterest in Sublessee and was a Participant in Registrant, brought litigationagainst Sublessee's supervisor, Wien & Malkin, and member, Peter L. Malkin,claiming misconduct and seeking damages and disqualification from performingservices for Sublessee. In March 2002, the court dismissed Mr. Schneider'sclaims. Although Mr. Schneider thereafter appealed the dismissal, the claim waswithdrawn prior to 2006 and is no longer pending. 

 

Item 4. Submission of Matters to a Vote ofParticipants.

No matters were submitted to theParticipants during the period covered by this report.

 

PART II

Item 5. Market for Registrant's CommonEquity and Related Security Holder Matters.

Registrant was originally organized as ageneral partnership pursuant to a partnership agreement dated as of July 11,1961. On October 1, 2001, Registrant converted from a general partnership to alimited liability company under New York law.

Registrant has not issued any commonstock. The securities registered by it under the Securities Exchange Act of1934, as amended, consist of participations in the Members' interests inRegistrant (the "Participations") and are not shares of common stock nor theirequivalent. The Participations represent each Participant's fractional share ina Member's undivided interest in Registrant and are divided approximatelyequally among the Members. A full unit of the Participations was offeredoriginally at a purchase price of $10,000; fractional 

units were also offered at proportionatepurchase prices. Registrant has not repurchased Participations in the past andis not likely to change that policy in the future.

The Participations are neither traded on an    established securities market nor are readily tradable on a secondary market    or the substantial equivalent thereof. Based on Registrant's transfer    records, Participations are sold by the holders thereof from time to time in    privately negotiated transactions and, in many instances, Registrant is not    aware of the prices at which such transactions occur. During the past year    there were 179 transfers. In one instance, the indicated purchase price was    equal to 10 times the face amount of the Participation transferred. In three    instances, the indicated purchase price was equal to 6.97 times the face    amount of the Participation transferred, i.e., $34,833 for a $5,000    Participation. In two instances, the indicated purchase price was equal to    5.26 times the face amount of the Participation transferred. In one    instance, the indicated purchase price was equal to 4.31 times the face    amount of the Participation transferred. In eleven instances, the indicated    purchase price was equal to 4 times the face amount of the Participation    transferred. In three instances, the indicated purchase price was equal to    3.9 times the face amount of the Participation transferred. In four    instances, the indicated purchase price was equal to 2.45 times the face    amount of the Participation transferred. In one instance, the indicated    purchase price was equal to 1.5 times the face amount of the Participation    transferred. In all other cases, no consideration was indicated.    
Tender offers for Participations have    been commenced by unrelated third parties during 2006 and early 2007 all of    which have expired at the date of this filing, in each case at prices    ranging from $40,000 to $50,000 for an original $10,000 Participation. A    small number of Participation(s) aggregating less than 0.1% of total    Participations were reportedly tendered.
- As of December 31, 2006, there were 2,764 holders    of Participations of record.           Registrant does not pay dividends. During the year    ended December 31, 2006, Registrant made regular monthly distributions of    $98.21 for each $10,000 Participation. There was Additional Rent of    $18,791,329 for the year ended December 31, 2006 which enabled Registrant to    make an additional distribution for each $10,000 Participation of $4,589 on    March 5, 2007. See Item 1 hereof. There are no restrictions on Registrant's    present or future ability to make distributions; however, the amount of such    distributions, particularly distributions of Additional Rent, depends solely    on Sublessee's ability to make payments of Basic Rent and Additional Rent to    Registrant. See Item 1 hereof. Registrant expects to make monthly    distributions in the future so long as it receives the payments provided    under the Sublease. See Item 7 hereof.           [SELECTED FINANCIAL DATA]    Item 6. 
Item 6.

EMPIRE STATE BUILDING ASSOCIATESL.L.C.
  (A Limited Liability Company) 
SELECTED FINANCIAL DATA
  (Unaudited)  The following table presents selectedfinancial data of the Registrant for each of the five years in the period endedDecember 31, 2006. This information is unaudited and has been derived from theaudited consolidated financial statements included in this Annual Report on Form10-K or from audited consolidated financial statements included in AnnualReports on Form 10-K previously filed by the Registrant. This data should beread together with the consolidated financial statements and the notes theretoincluded in this Annual Report on Form 10-K.   
Year ended December 31
 
2006

2005

2004

2003

2002

Basic rent income

$ 6,018,750

$ 6,018,750

$ 6,018,750

$ 6,018,750

$ 6,018,750
 
Additional rent income

18,791,329

16,324,979

9,469,543

6,802,295

14,476,008
 
Dividend and interest income

339,334

158,209

61,322

70,481

152,081
 
Miscellaneous

978

-

-

-

-
  
Total revenues

$25,150,391

$22,501,938

$15,549,615

$12,891,526

$20,646,839

Net income

$18,813,909

$16,308,881

$ 9,761,227

$7,247,765

$15,397,298

Earnings per $10,000

participation unit,

based on 3,300

participation units

outstanding during the year

 

 

 

 

$5,701

 

 

 

 

$ 4,942

 

 

 

 

$ 2,958

 

 

 

 

$ 2,196

 

 

 

 

$ 4,666

Total assets

$81,491,531

$80,063,503

$73,446,834

$72,185,694

$80,521,663

Long-term obligations

$60,500,000

$60,500,000

 

$60,500,000

$60,500,000

$60,500,000

Distributions per $10,000

participation unit, based on

3,300 participation units 

outstanding during the year:
 
Income

$5,298

$3,318

$ 2,524

$ 2,196

$ 4,666
 
Return of capital

-0-

-0-

-0-

2,394

3,513
 
Total distributions

$5,298

$3,318

$ 2,524

$ 4,590

$ 8,179

 

EMPIRE STATE BUILDING ASSOCIATESL.L.C.

(A Limited Liability Company)

QUARTERLY RESULTS OF OPERATIONS

(Unaudited)

Item 6a.

 

The following table presents theRegistrant's unaudited operating results for each of the eight fiscal quartersin the period ended December 31, 2006. The information for each of thesequarters is unaudited and has been prepared on the same basis as the auditedconsolidated financial statements included in this Annual Report on Form 10-K.In the opinion of management, all necessary adjustments, which consist only ofnormal and recurring accruals, have been included to present fairly theunaudited quarterly results. This data should be read together with theconsolidated financial statements and the notes thereto of the Registrantincluded in this Annual Report on Form 10-K.

Three Months Ended

March 31,

June 30,

September 30,

December 31,

Consolidated Income Data:

2006

2006

2006

2006
    
Basic rent income

$1,504,687

$1,504,688

$1,504,687

$ 1,504,687

Additional rent income

-

-

-

18,791,329

Dividend and interest income

143,681

64,465

64,433

66,755

Miscellaneous income

-

-

978

-

Total revenues

1,648,368

1,569,153

1,570,098

20,362,771
     
Interest on mortgage

983,125

994,049

1,004,973

1,004,971

Supervisory services

39,854

39,854

39,855

1,006,494

Depreciation of building

249,566

249,566

249,565

249,565

Amortization of financing costs

44,907

44,907

44,907

44,908

Professional fees and miscellaneous

615 

(81)

44,605

275

Total expenses

1,318,067

1,328,295

1,383,905

2,306,213

Net income

$ 330,301

$ 240,858

$ 186,193

$ 18,056,558
     
Earnings per $10,000 participation unit, based on      3,300 participation units outstanding during each period

 

 

$ 100

 

 

 

$ 73

 

 

$ 56

 

 

$ 5,472
     
 

 

 

 

 

 

 

 

EMPIRE STATE BUILDING ASSOCIATESL.L.C.

(A Limited Liability Company)

QUARTERLY RESULTS OF OPERATIONS

(Unaudited)

 

 

 

Item 6a.

Three MonthsEnded
March 31,

June 30,

September 30,

December 31,

Consolidated Income Data:

2005

2005

2005

2005

Basic rent income

$1,504,687

$1,504,688

$1,504,688

$1,504,687

Additional rent income

-

-

-

16,324,979

Dividend and interest income

52,695 

28,920 

33,506 

43,088

Total revenues

1,557,382 

1,533,608 

1,538,194 

17,872,754 
     
Interest on mortgage

983,125

994,048

1,004,973

1,004,971

Supervisory services

39,854

39,854

39,855

907,645

Depreciation of building

249,566

249,566

249,566

249,564

Amortization of financing costs

44,907

44,907

44,907

44,908

Professional fees and miscellaneous

660 

345 

(360) 

195 

Total expenses

1,318,112 

1,328,721 

1,338,941 

2,207,283 

Net income

$ 239,270

$ 204,887

$ 199,253 

$15,665,471
     
Earnings per $10,000 participation unit, based on      3,300 participation units outstanding during each period

 

 

$ 73

 

 

$ 62

 

 

$ 60 

 

 

$ 4,747
     
 

 

 

 

 

 

 

 

 

Item 7. Management's Discussion and Analysis ofFinancial Condition and Results of Operations.

Forward Looking Statements

Readers of this discussion are advisedthat the discussion should be read in conjunction with the consolidatedfinancial statements of Registrant (including related notes thereto) appearingelsewhere in this Form 10-K. Certain statements in this discussion mayconstitute "forward-looking statements" within the meaning of the PrivateSecurities Litigation Reform Act of 1995. Forward-looking statements reflectRegistrant's current expectations regarding future results of operations,economic performance, financial condition and achievements of Registrant, and donot relate strictly to historical or current facts. Registrant has tried,wherever possible, to identify these forward-looking statements by using wordssuch as "believe", "expect", "anticipate", "intend", "plan", "estimate" or wordsof similar meaning.

Although Registrant believes that theexpectations reflected in such forward-looking statements are based onreasonable assumptions, such statements are subject to risks and uncertainties,which may cause the actual results to differ materially from those projected.Such factors include, but are not limited to, the following: general economicand business conditions, which will, among other things, affect demand forrental space, the availability of prospective tenants, lease rents and theavailability of financing; adverse changes in Registrant's real estate market,including, among other things, competition with other real estate owners, risksof real estate development and acquisitions; governmental actions andinitiatives; and environmental/safety requirements.

 

SIGNIFICANT ACCOUNTING POLICIES ANDESTIMATES

The Securities and Exchange Commission("SEC") issued disclosure guidance for "Critical Accounting Policies." The SECdefines Critical Accounting guidance for Critical Accounting Policies as thosethat require the application of management's most difficult, subjective, orcomplex judgments, often because of the need to make estimates about the effectof matters that are inherently uncertain and may change in subsequentperiods.

Registrant's discussion and analysis ofits financial condition and results of operations are based upon Registrant'sconsolidated financial statements, the preparation of which takes into accountestimates based on judgments and assumptions that affect certain amounts anddisclosures. Accordingly, actual results could differ from these estimates. Theaccounting policies and estimates used and outlined in Note 2 to Registrant'sconsolidated financial statements, which are presented elsewhere in this annualreport, have been applied consistently as at December 31, 2006 and 2005, and forthe years ended December 31, 2006, 2005 and 2004. Registrant believes that thefollowing accounting policies or estimates require the application ofmanagement's most difficult, subjective, or complex judgments:

Valuation of Long-Lived Assets: Registrantperiodically assesses the carrying value of long-lived assets whenever events orchanges in circumstances indicate that their 

 

 

carrying amount may not be recoverable.When Registrant determines that the carrying value of long-lived assets may beimpaired, the measurement of any impairment is based on a projected discountedcash flows method determined by Registrant's management. While Resistrantbelieves its discounted cash flow methods are reasonable, different assumptionsregarding such cash flows may significantly affect the measurement ofimpairment.

Revenue Recognition: Basic Rent andAdditional Rent, which is based on the Sublessee's annual net income as definedin the Sublease, are recognized when earned. Before Registrant can recognizerevenue, it is required to assess, among other things, its collectibility. IfRegistrant incorrectly determines the collectability of revenue, its net incomeand assets could be overstated.

 

Financial Condition and Results of Operations

At the time of its organization,Registrant acquired the Master Lease of the Property subject to the Sublease.Basic Rent received by Registrant was used to pay annual rent due under theMaster Lease and the Basic Payment and a portion of the additional payment toSupervisor; and the balance of such Basic Rent was distributed to theParticipants. Currently, Basic Rent received by Registrant is used to pay theBasic Payment and a portion of the additional payment to Supervisor and aportion of debt service on the new mortgage; and the balance of such Basic Rentis distributed to the Participants. Additional Rent and any interest anddividends accumulated thereon are distributed to the Participants after theadditional payment to Supervisor. Pursuant to the Sublease, Sublessee hasassumed responsibility for the condition, operation, repair, maintenance andmanagement of the Property. Registrant is not required to maintain liquid assetsto defray any operating expenses of the Property.

The supervisory services provided toRegistrant by Supervisor include, but are not limited to, providing orcoordinating counsel services to Registrant, maintaining all of its entity andParticipant records, performing physical inspections of the Building, reviewinginsurance coverage, conducting annual supervisory review meetings, receipt ofmonthly rent from Sublessee, payment of monthly and additional distributions tothe Participants, payment of all other disbursements, confirmation of thepayment of real estate taxes, active review of financial statements submitted toRegistrant by Sublessee and financial statements audited by and tax informationprepared by Registrant's independent registered public accounting firm, anddistribution of related materials to the Participants. Supervisor also preparesquarterly, annual and other periodic filings with the SEC and applicable stateauthorities.

Registrant pays Supervisor for otherservices at hourly rates.

Registrant's results of operations areaffected primarily by the amount of rent payable to it under the Sublease. Theamount of Additional Rent payable to Registrant is affected by the New York Cityeconomy and real estate rental and tourist attraction markets, which aredifficult for management to forecast. 

As compared with the prior year, adecrease in Additional Rent earned in any year reduces the distributions made tothe Participants in the following year and the expenditure for supervisoryservices. Reductions in the amount of Additional Rent paid to Registrant in thefuture will not have any other impact on Registrant. See paragraph 1 of Item 7hereof and Notes 2 and 3 of the Notes to the consolidated financial statements.

The following summarizes the materialfactors affecting Registrant's results of operations for the three precedingyears: 

(a) Total revenues increased for the yearended December 31, 2006 as compared with the year ended December 31, 2005. Suchincrease was the result of an increase in Additional Rent received by Registrantin 2006 and an increase in dividend and interest income earned as compared withthe year ended December 31, 2005. Total revenues increased for the year endedDecember 31, 2005 as compared with the year ended December 31, 2004. Suchincrease was the result of an increase in Additional Rent in the year 2005 andan increase in dividend and interest income earned as compared with the yearended December 31, 2004. See Note 3 of the Notes to the Consolidated FinancialStatements.

(b) Total expenses increased for the yearended December 31, 2006 as compared with the year ended December 31, 2005. Suchincrease is the result of an increase in the additional payment to Supervisorand an increase in professional fees and miscellaneous expenses as compared withthe year ended December 31, 2005. Total expenses increased for the year endedDecember 31, 2005 as compared with the year ended December 31, 2004. Suchincrease is the net result of a decrease in interest expense on the mortgage anda decrease in professional fees and an increase in the additional payment toSupervisor as compared with the year ended December 31, 2004. 

Liquidity and Capital Resources

Registrant's liquidity has notsignificantly changed for the year ended December 31, 2006 as compared with theyear ended December 31, 2005. Registrant may from time to time set aside cashfor contingent liabilities.

No amortization payments are due under theMortgage to reduce the outstanding 

principal balance prior to maturity.Furthermore, Registrant does not maintain any reserve to cover the principalpayment of such Mortgage indebtedness at maturity. Therefore, repayment of theMortgage will depend on Registrant's ability to arrange a refinancing. If theReal Estate continues to generate an annual net profit in future yearscomparable to that in past years, and if current real estate trends continue inthe geographic area in which the Real Estate is located, Registrant anticipatesthat the value of the Real Estate would be sufficient to cover the Mortgagebalance at maturity. 

Registrant anticipates that funds forworking capital for the Real Estate will be provided from rental paymentsreceived by Sublessee, which entity is required to make payments of Basic Rentand Additional Rent under the Sublease and, to the extent necessary, fromadditional capital investment by the Members of the Sublessee and/or externalfinancing. Registrant has no requirement to maintain substantial reserves todefray any operating expenses of the Real Estate.

Inflation

Inflationary trends in the economy do notdirectly impact Registrant's operations. As noted above, Registrant does notactively engage in the operation of the Real Estate. Inflation may impact theoperations of the Sublessee. The Sublessee is required to pay the Basic Rentregardless of the results of its operations. Inflation and other operatingfactors affect the amount of Additional Rent payable by the Sublessee, which isbased on the Sublessee's net operating profit.

 

Other Information

The Sublessee is to maintain the Buildingas a high-class office building as required by the terms of the Sublease.

Based on Sublessee's review of the needfor upgrades and improvements to the Real Estate, Sublessee had incurredimprovement costs of approximately $6,235,000 during 2006. Sublessee iscurrently reviewing the cost of all projects budgeted in 2007 andthereafter.

The Sublessee anticipates that the costsof improvements or debt service on funds borrowed for improvements will reduceAdditional Rent during the year 2007 but should have no effect on the payment ofBasic Rent.

 

Item 8. Financial Statements andSupplementary Data.

The consolidated financial statements ofthe Registrant as of December 31, 2006 and 2005 and for each of the three yearsin the period ended December 31, 2006 and the financial statements of theSublessee as of and for the year ended December 31, 2006 are included in thisannual report immediately following Exhibit 32.2 or will be included byamendment.

Item 9. Disagreements on Accounting andFinancial Disclosure.

Not applicable.

 

Item 9a. Controls and Procedures.

Evaluation of disclosure controls and procedures.    The person who functions in the capacity of Registrant's chief executive    officer and Registrant's chief financial officer, after evaluating the    effectiveness of Registrant's "disclosure controls and procedures" (as    defined in the Securities Exchange Act of 1934 Rules 13a-15(e) and    15d-15(e)) as of December 31, 2006, the end of the period covered by this    report, has concluded that as of that date that Registrant's disclosure    controls and procedures were effective and designed to ensure that material    information relating to Registrant would be made known to him by others    within those entities on a timely basis.    
- Changes in internal controls over financial    reporting. There were no changes in Registrant's internal controls over    financial reporting that occurred during the most recent fiscal quarter that    have materially affected, or are reasonably likely to affect, the    Registrant's internal controls over financial reporting.     
 
 
PART III
Item 10. Directors and Executive Officersof Registrant.
Registrant has no directors or officers orany other centralization of management. There is no specific term of office forany Agent. The table below sets forth as to each Member as of December 31, 2006the following: name, age, nature of any family relationship with any otherAgent, business experience during the past five years and principal occupationand employment during such period, including the name and principal business ofany corporation or any organization in which such occupation and employment wascarried on and the date such individual became an Agent:

 

 

 

Name

 

 

Age

Nature of Family Relationship

 

Business Experience

Principal Occupation and Employment

Date Individual became an agent

Peter L. Malkin

73

Father of Anthony E. Malkin

Real Estate Supervision

Senior Member and Chairman, Wien      & Malkin LLC

1961

Anthony E. Malkin

44

Son of Peter L. Malkin

Real Estate Supervision and      Management

President,

Wien & Malkin LLC, and W&M      Properties, L.L.C.

2001

Thomas N. Keltner, Jr.

60

None

Real Estate Supervision

Member,

Wien & Malkin LLC

1998

As stated above, all three Members who areacting as Agents for Participants hold senior positions at Supervisor. See Items1, 11, 12 and 13 hereof for a description of the services rendered by, and thecompensation paid to, Supervisor and for a discussion of certain relationshipswhich may pose actual or potential conflicts of interest among Registrant,Sublessee and certain of their respective affiliates.

The names of entities which have a classof securities registered pursuant to Section 12 of the Securities Exchange Actof 1934 or are subject to the requirements of Section 15(d) of that Act and inwhich any Member is a director, member or general partner are as follows:

Peter L. Malkin is a member in 250 West57th St. Associates L.L.C. and 60 East 42nd St. Associates L.L.C. 

Anthony E. Malkin is a member in 250 West57th St. Associates L.L.C. and 60 East 42nd St. Associates L.L.C.

Thomas N. Keltner, Jr. is a member in 60East 42nd St. Associates L.L.C.

 

Item 11. Executive Compensation.

As stated in Item 10 hereof, Registranthas no directors or officers or any other centralization of management.

Registrant's organizationaldocuments do not provide for a board of directors or officers. As described inthe Report, Registrant is a limited liability company which is supervised byWien & Malkin LLC. No remuneration was paid during the current fiscal yearended December 31, 2006 by Registrant to any of the Agents as such. Registrantpays Supervisor, for supervisory services and disbursements, fees of $159,417per annum. Supervisor also receives an additional payment equal to 6% ofAdditional Rent and dividend income distributed by Registrant to theParticipants. Pursuant to such arrangements described herein, Registrantincurred supervisory fees during 2006 totaling $1,126,057****(consisting of $159,417 asan annual basic fee for supervisory services and $966,640 as an additionalpayment). For tax purposes, such additional payment is recognized as a profitsinterest and the Supervisor is treated as a partner, all without modifying eachParticipant's distributive share of reportable income and cash distributions.See Item 7 hereof. As noted in Items 1 and 10 of this report, all of the Agentshold senior positions at Supervisor.
 

Item 12. Security Ownership of CertainBeneficial Owners

and Management.

Registrant has no voting securities. See Item 5    hereof. At December 31, 2006, no person owned of record or was known by    Registrant to own beneficially more than 5% of the outstanding    Participations.    
- At December 31, 2006, the Members (see Item 10    hereof) beneficially owned, directly or indirectly, the following    Participations:             

 

Title of Class

Name & Address of Benefical Owners

Amount of Beneficial Ownership

Percent of Class

Participations in Member        Interest

Anthony E. Malkin

60 East 42nd Street

New York, N.Y. 10165

 

$23,333

 

.07071%

Thomas N. Keltner, Jr.

60 East 42nd Street

New York, N.Y. 10165

 

$6,667

 

.02020%

 

 

At such date, certain of the Members (or  their respective spouses) held additional Participations as follows:

Peter L. Malkin owned of record as  trustee or co-trustee but not beneficially, $516,667 of Participations. Mr.  Malkin disclaims any beneficial ownership of such Participations.

Entities for the benefit of members of  Peter L. Malkin's family owned of record and beneficially $675,691 of  Participations. Peter L. Malkin disclaims any beneficial ownership of such  Participations, except that related family trusts and entities are required to  complete scheduled payments to Peter L. Malkin.

Anthony E. Malkin owned of record as  trustee or co-trustee but not beneficially, $35,833 of Participations. Anthony  E. Malkin disclaims any beneficial ownership of such Participations. 
Not applicable.

 

Item 13. Certain Relationships and RelatedTransactions.

(a) As stated in Item 1 hereof, Mr. PeterL. Malkin, Mr. Anthony E. Malkin and Mr. Keltner are the three Members inRegistrant and also act as agents for the Participants in their respectivemember interests. Peter L. Malkin is also a member in Sublessee. As aconsequence of one of the three Members being a member in Sublessee, and all ofthe Members holding senior positions at Supervisor (which supervises Registrantand Sublessee), certain actual and potential conflicts of interest may arisewith respect to the management and administration of the business of Registrant.However, under the respective participating agreements pursuant to which theMembers act as agents for the Participants, certain transactions require theprior consent from Participants owning a specified interest under the agreementin order for the Agents to act on their behalf. Such transactions, among others,include modifications and extensions of the Sublease or Mortgage, or a sale orother disposition of the Property or substantially all of Registrant'sassets.

Reference is made to Items 1 and 2 hereoffor a description of the terms of the Sublease between Registrant and Sublessee.The respective interests of the Members in Registrant and in Sublessee arisesolely from ownership of their respective Participations in Registrant and, inthe case of Peter L. Malkin, his family entities' ownership of member interestsin Sublessee. The Members as such receive no extra or special benefit not sharedon a pro rata basis with all other Participants in Registrant or members inSublessee. However, all of the Members hold senior positions at Supervisor(which supervises Registrant and Sublessee) and, by reason of their position atSupervisor, may receive income attributable to supervisory or other remunerationpaid by Registrant to Supervisor and Sublessee. See Item 11 hereof for adescription of the remuneration arrangements between Registrant and Supervisorrelating to supervisory services provided by Supervisor.

Reference is also made to Items 1 and 10hereof for a description of the relationship between Registrant and Supervisor,of which all of the Agents are among the Members. The respective interest of theMembers in any remuneration paid by Registrant to Supervisor arise solely fromsuch member's interest in Supervisor. See Item 11 hereof for a description ofthe remuneration arrangements between Registrant and Supervisor relating tosupervisory services provided by Supervisor. 

(b) Reference is made to Paragraph (a)above.

(c) Not applicable.

(d) Not applicable.

 

 

Item 14. PRINCIPAL ACCOUNTANT FEES ANDSERVICES

 

The fees paid by Registrant and Wien &Malkin LLC, the Supervisor of Registrant, to J.H. Cohn LLP for professionalservices for the years ended December 31, 2006 and December 31, 2005 were asfollows:

Fee Category

2006

2005

Audit Fees

$50,800

$46,250

Audit-Related Fees

4,200

9,500

Tax Fees

6,000

6,000

All Other Fees

0

0
   
Total Fees

$61,000

$61,750

 

Audit Fees. Consist of fees billed forprofessional services rendered for the audit of Registrant's consolidatedfinancial statements and review of the interim financial statements included inquarterly 10-Q reports.

Audit-Related Fees. Consists of feesbilled for assurance and related services that are reasonably related to theperformance of the audit or review of Registrant's consolidated financialstatements and are not reported under "Audit Fees." In 2006, these servicesinclude accounting consultation, review of Sarbanes-Oxley requirements as theypertain to Registrant, and other audit-related services.

Tax Fees. Consists of fees billed forprofessional services for tax compliance, tax advice and preparation of taxreturns.

POLICY ON AUDIT COMMITTEE PRE-APPROVAL OFAUDIT SERVICES

AND PERMISSIBLE NON-AUDIT SERVICES OFINDEPENDENT AUDITORS

Registrant has no audit committee as such.Registrant's policy is to pre-approve all audit and permissible non-auditservices performed by the independent public accountants. These services mayinclude audit services, audit related services, tax services and other services.For audit services, the independent auditor provides an engagement letter inadvance of the services outlining the scope of the audit and related audit fees.If agreed by Registrant, this engagement letter is formally accepted byRegistrant.

For all services, Registrant's supervisorymanagement staff submits from time to time to the Agents of Registrant forapproval services that it recommends the Registrant engage the independentauditor to provide. In addition, the Agents of Registrant pre-approve specificnon-audit services that the independent auditor is authorized to provide. Allfee proposals for those non-audit services must be pre-approved in writing by asenior executive of the Supervisor. The Agents of Registrant are informedroutinely by the independent auditor pursuant to this pre-approved process.

 
** 

Item 15. Exhibits and Financial StatementSchedules 
**(a)(1) Financial Statements

(2) Financial Statement Schedules 

The consolidated financial statements and the financialstatement schedule of the Registrant and the financial statements of theSublessee required in this annual report are listed in the respective indexes tothose financial statements and financial statement schedule of the Registrantand the Sublessee included immediately following Exhibit 32.2 or to be includedby amendment.

(3) Exhibits: See Exhibit Index.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

SIGNATURE

 

Pursuant to the requirements of Section 13or 15(d) of the Securities Exchange Act of 1934, Registrant has duly caused thisreport to be signed on its behalf by the undersigned, thereunto dulyauthorized.

The individual signing this report onbehalf of Registrant is Attorney-in-Fact for Registrant and each of the Membersin Registrant, pursuant to Powers of Attorney, dated October 13, 2003(collectively, the "Power").

 

EMPIRE STATE BUILDING ASSOCIATESL.L.C.

(Registrant)

 

 

By /s/ Mark Labell

Mark Labell, Attorney-in-Fact

 

Date: May 17, 2007

 

Pursuant to the requirements of theSecurities Exchange Act of 1934, this report has been signed below by thefollowing person as Attorney-in-Fact for each of the Members in Registrant,pursuant to the Power, on behalf of Registrant and as a Member in Registrant onthe date indicated.

 

By /s/ Mark Labell

Mark Labell, Attorney-in-Fact*

 

Date: May 17, 2007

 

 

 

 

 

 

 

_________________________________

* Mr. Labell supervises accountingfunctions for Registrant.

EXHIBIT INDEX

Number Document Page*

3 (a)

Registrant's Partnership Agreement      dated July 11, 1961, filed as Exhibit No. 1 to Registrant's Registration      Statement on Form S-1 as amended (the "Registration Statement") by letter      dated August 8, 1962 and assigned File No. 2-18741, is incorporated by      reference as an exhibit hereto.

3 (b)

Amended Business Certificate of      Registrant Filed with the Clerk of New York County on August 7, 1998      reflecting a change in the Partners of Registrant which was filed as      Exhibit 3(b) to Registrant's 10-Q-A for the quarter ended September 30,      1998 and is incorporated by reference as an exhibit hereto.

3 (c)

Registrant's Consent and      Operating

Agreement dated as of September 30,      2001 

3 (d)

Certificate of Conversion of      Registrant

to a limited liability company dated      October 1, 2001 filed with the New York Secretary of State on October 3,      2001.

4

Registrant's form of Participating      Agreement, filed as Exhibit No. 6 to the Registration Statement by letter      dated August 8, 1962 and assigned File No. 2-18741, is incorporated by      reference as an exhibit hereto.

24

Powers of Attorney dated October 13,      2003 between the Partners of Registrant and Mark Labell which was filed as      Exhibit 24 to Registrant's 10-Q for the quarter ended September 30, 2003      and is incorporated herein by reference. 

31.1 

Certification of Mark Labell,      Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. 
 
31.2

Certification of Mark Labell,      Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
 
32.1

Certification of Mark Labell,      Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of      the Sarbanes-Oxley Act of 2002
 
32.2 

Certification of Mark Labell,      Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of      the Sarbanes-Oxley Act of 2002

 

* Page references are based on sequentialnumbering system.
** 

 

 

 

Exhibit 31.1

CERTIFICATIONS**
I, Mark Labell, certify that:

I have reviewed this annual report on Form 10-K of    Empire State Building Associates L.L.C.;    
- Based on my knowledge, this report does not contain    any untrue statement of a material fact or omit to state a material fact    necessary to make the statements made, in light of the circumstances under    which such statements were made, not misleading with respect to the period    covered by this report;         Based on my knowledge, the financial statements,    and other financial information included in this report, fairly present in    all material respects the financial condition, results of operations and    cash flows of the registrant as of, and for, the periods presented in this    report;    The registrant's other certifying officer(s) and I    are responsible for establishing and maintaining disclosure controls and    procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for    the registrant and we have:    
designed such disclosure controls and procedures or    caused such disclosure controls and procedures to be designed under our    supervision,    
to ensure that material information    relating to the registrant, including its consolidated subsidiaries, is made    known to us by others within those entities, particularly during the period    in which this report is being prepared;
- evaluated the effectiveness of the registrant's    disclosure controls and procedures and presented in this report our    conclusions about the effectiveness of the disclosure controls and    procedures, as of the end of the period covered by this report based on such    evaluation; and         disclosed in this report any change in the    registrant's internal control over financial reporting that occurred during    the registrant's most recent fiscal quarter (the registrant's fourth fiscal    quarter in the case of an annual report) that has materially affected, or is    reasonably likely to materially affect, the registrant's internal control    over financial reporting; and      The registrant's other certifying officers and I    have disclosed, based on our most recent evaluation of internal control over    financial reporting, to the registrant's auditors and the audit committee of    registrant's board of directors (or persons performing the equivalent    functions):    
all significant deficiencies and material    weaknesses in the design or operation of internal controls over financial    reporting which are reasonably likely to adversely affect the registrant's    ability to record, process,    
- summarize and report financial information; and           any fraud, whether or not material, that involves    management or other employees who have a significant role in the    registrant's internal controls over financial reporting.      Date: May 17, 2007        By /s/ Mark Labell 
Name: Mark Labell 

Title: Senior Vice President, Finance Wien & MalkinLLC, Supervisor of Empire State Building Associates L.L.C. 

 

 
**Exhibit 31.2

CERTIFICATIONS**
I, Mark Labell, certify that:

I have reviewed this annual report on Form 10-K of    Empire State Building Associates L.L.C.;    
- Based on my knowledge, this report does not contain    any untrue statement of a material fact or omit to state a material fact    necessary to make the statements made, in light of the circumstances under    which such statements were made, not misleading with respect to the period    covered by this report;         Based on my knowledge, the financial statements,    and other financial information included in this report, fairly present in    all material respects the financial condition, results of operations and    cash flows of the registrant as of, and for, the periods presented in this    report;    The registrant's other certifying officer(s) and I    are responsible for establishing and maintaining disclosure controls and    procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for    the registrant and we have:    
designed such disclosure controls and procedures or    caused such disclosure controls and procedures to be designed under our    supervision,    
to ensure that material information    relating to the registrant, including its consolidated subsidiaries, is made    known to us by others within those entities, particularly during the period    in which this report is being prepared;
- evaluated the effectiveness of the registrant's    disclosure controls and procedures and presented in this report our    conclusions about the effectiveness of the disclosure controls and    procedures, as of the end of the period covered by this report based on such    evaluation; and         disclosed in this report any change in the    registrant's internal control over financial reporting that occurred during    the registrant's most recent fiscal quarter (the registrant's fourth fiscal    quarter in the case of an annual report) that has materially affected, or is    reasonably likely to materially affect, the registrant's internal control    over financial reporting; and      The registrant's other certifying officers and I    have disclosed, based on our most recent evaluation of internal control over    financial reporting, to the registrant's auditors and the audit committee of    registrant's board of directors (or persons performing the equivalent    functions):    
all significant deficiencies and material    weaknesses in the design or operation of internal controls over financial    reporting which are reasonably    

likely to adversely affect theregistrant's ability to record, process, summarize and report financialinformation; and
any fraud, whether or not material, that involves    management or other employees who have a significant role in the    registrant's internal controls over financial reporting.    

 

 

Date: May 17, 2007

 

 

By /s/ Mark Labell 
Name: Mark Labell 

Title: Senior Member of Financial/Accounting Staff ofWien & Malkin LLC, Supervisor of Empire State Building Associates L.L.C.
****
 

**Exhibit32.1
 

 

Empire State Building Associates L.L.C.

Certification Pursuant to 18 U.S.C.,Section 1350 as adopted

Pursuant to Section 906

of Sarbanes - Oxley Act of 2002

The undersigned, Mark Labell, is signingthis Chief Executive Officer certification as Senior Vice President, Finance ofWien & Malkin LLC, the Supervisor * of Empire State Building AssociatesL.L.C. ("Registrant") to certify that:

the Annual Report on Form 10-K of Registrant for    the period ended December 31, 2006 (the "Report") fully complies with the    requirements of Section 13(a) or 15(d) of the Securities Exchange Act of    1934 (15 U.S.C.78m or 78o(d)); and    
- the information contained in the Report fairly    presents, in all material respects, the financial condition and results of    operations of Registrant.     
Dated: May 17, 2007

By /s/ Mark Labell

Mark Labell

Senior Vice President, Finance

Wien & Malkin LLC, Supervisor 

 

 

 

*Registrant's organizational documents donot provide for a Chief Executive Officer or other officer with equivalentrights and duties. As described in the Report, Registrant is a limited liabilitycompany which is supervised by Wien & Malkin LLC. Accordingly, this ChiefExecutive Officer certification is being signed by a senior executive ofRegistrant's supervisor.

Exhibit 32.2

 

Empire State Building Associates L.L.C.

Certification Pursuant to 18 U.S.C.,Section 1350 as adopted

Pursuant to Section 906

of Sarbanes - Oxley Act of 2002

The undersigned, Mark Labell, is signingthis Chief Financial Officer certification as a senior member of thefinancial/accounting staff of Wien & Malkin LLC, the Supervisor* of EmpireState Building Associates L.L.C. ("Registrant"), to certify that:

the Annual Report on Form 10-K of Registrant for    the period ended December 31, 2006 (the "Report") fully complies with the    requirements of Section 13(a) or 15(d) of the Securities Exchange Act of    1934 (15 U.S.C.78m or 78o(d)); and    
- the information contained in the Report fairly    presents, in all material respects, the financial condition and results of    operations of Registrant.     
Dated: May 17, 2007

By /s/ Mark Labell 

Mark Labell 
Senior Vice President, Finance
Wien & Malkin LLC, Supervisor
 
 
 
 
*Registrant's organizational documents donot provide for a Chief Financial Officer or other officer with equivalentrights and duties. As described in the Report, Registrant is a limited liabilitycompany which is supervised by Wien & Malkin LLC. Accordingly, this ChiefFinancial Officer certification is being signed by a senior member of thefinancial/accounting staff of Registrant's supervisor. 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

INDEX TO FINANCIAL STATEMENTS ANDSCHEDULES

EMPIRE STATE BUILDING ASSOCIATES L.L.C.

(A Limited Liability Company)

 

Report of J.H. Cohn LLP -- Independent Registered PublicAccounting Firm 
Consolidated Balance Sheets as of December 31, 2006 and2005 
Consolidated Statements of Operations for the YearsEnded December 31, 2006, 2005 and 2004 
Consolidated Statements of Stockholders' Equity for theYears Ended December 31, 2006, 2005 and 2004 
Consolidated Statements of Cash Flows for the YearsEnded December 31, 2006, 2005 and 2004 
Notes to Consolidated Financial Statements 
 
 
SCHEDULE III - Real Estate and Accumulated Depreciationas of December 31, 2006 
All other schedules are omitted as the information isnot required, is not material or is otherwise provided.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTINGFIRM

 
To the Participants in Empire State Building AssociatesL.L.C.
(a Limited Liability Company)
 
We have audited the accompanyingconsolidated balance sheets of Empire State Building Associates L.L.C.("Associates") as of December 31, 2006 and 2005, and the related consolidatedstatements of income, members' equity and cash flows for each of the three yearsin the period ended December 31, 2006, and the supporting financial statementschedule, Schedule III- real estate and accumulated depreciation, also includedin this Form 10-K. These consolidated financial statements and the schedule arethe responsibility of Associates' management. Our responsibility is to expressan opinion on these consolidated financial statements and financial statementschedule based on our audits.
We conducted our audits in accordance withthe standards of the Public Company Accounting Oversight Board (United States).Those standards require that we plan and perform the audit to obtain reasonableassurance about whether the financial statements are free of materialmisstatement. An audit includes examining, on a test basis, evidence supportingthe amounts and disclosures in the financial statements. An audit also includesassessing the accounting principles used and significant estimates made bymanagement, as well as evaluating the overall financial statement presentation.We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financialstatements referred to above present fairly, in all material respects, thefinancial position of Empire State Building Associates L.L.C. as of December 31,2006 and 2005, and its results of operations and cash flows for each of thethree years in the period ended December 31, 2006, in conformity with accountingprinciples generally accepted in the United States of America, and the relatedfinancial statement schedule, when considered in relation to the basic financialstatements, presents fairly, in all material respects, the information set forththerein.
 
 
 
/s/J.H.Cohn LLP
 
New York, N. Y.
March 7, 2007

EMPIRE STATE BUILDING ASSOCIATESL.L.C.

(A Limited Liability Company)
CONSOLIDATED BALANCE SHEETS
A S S E T S
 
December 31,
 
2006

2005

Assets:
  
Real estate:
   
Building:
   
Empire State Building, located at

350 Fifth Avenue, New York, N. Y.

$38,933,801

$38,933,801
 
Less: Accumulated depreciation

4,701,257

3,702,994
 
34,232,544

35,230,807

 

 

Land Land

21,550,588

21,550,588
 
TOTAL REAL ESTATE

55,783,132

56,781,395

Cash and cash equivalents:
   
JPMorgan Chase Bank

540,469

538,221
 
Distribution account held by Wien & Malkin      LLC

324,111

324,111
 
Fidelity U.S. Treasury Income Portfolio

21,481,882

19,021,513
 
Total cash and cash equivalents

22,346,462

19,883,845
   
Restricted cash re: mortgage interest

885,458

851,683

Additional rent due from Empire State
   
Building Company L.L.C., a related party

1,291,329

1,324,979

Receivable from participants - NYS estimated      tax

231,915

91,437

62,893

Accounts receivable

2,700

-
 
Mortgage financing costs

1,796,287

1,796,287

Less: accumulated amortization

845,752

666,123
 
MORTGAGE REFINANCING COSTS, NET

950,535

1,130,164
    
TOTAL ASSETS

$81,491,531

$80,063,503

LIABILITIES AND MEMBERS' EQUITY

Liabilities:
 
First mortgage payable 

$60,500,000

$60,500,000
 
Accrued interest payable

338,632

338,632
 
Prepaid rent

501,564

501,564
 
Accrued supervisory services, to a related      party

966,640

867,791
 
TOTAL LIABILITIES

62,306,836

62,207,987

Commitments and contingencies 

Members' equity 

19,184,695

17,855,516
  
TOTAL LIABILITIES AND MEMBERS' EQUITY

$81,491,531

$80,063,503

See accompanying notes to consolidatedfinancial statements.

EMPIRE STATE BUILDING ASSOCIATESL.L.C.

(A Limited Liability Company)

CONSOLIDATED STATEMENTS OF INCOME

 

 
  
Year ended December  31,
 
2006

2005

2004

Revenues:
    
Rent income, from a related party

$24,810,079

$22,343,729

$15,488,293
 
Dividend and interest income

339,334

158,209

61,322

Miscellaneous income

978

-

-

Total revenues

25,150,391

22,501,938

15,549,615
    
Expenses:
    
Interest on mortgage 

3,987,118

3,987,118

3,998,042
 
Supervisory services, to a related party 

1,126,057

1,027,208

610,069
 
Depreciation of building

998,262

998,262

998,264
 
Amortization of financing costs

179,629

179,629

179,628
 
Fees and miscellaneous, including amounts paid to      a related party 

45,416

840

2,385

Total expenses

6,336,482

6,193,057

5,788,388
 
NET INCOME

$18,813,909

$16,308,881

$9,761,227

Earnings per $10,000 participation unit, based

on 3,300 participation units outstanding

during each year

 

$5,701 

 

$4,942

 

$2,958

 

 

 

 

 

 

 

 

 

 

See accompanying notes to consolidatedfinancial statements.

 

 

EMPIRE STATE BUILDING ASSOCIATESL.L.C.

(A Limited Liability Company)

CONSOLIDATED STATEMENTS OF MEMBERS'EQUITY

 
      
Members'

Share of
 
Members'
 
Equity'

Net Income
 
Equity
 
January 1,

For Year

Distributions

December31,

Year Ended December 31, 2004:
    
Anthony E. Malkin Group

$3,687,900

3,253,742

2,776,247

4,165,395
     
Thomas N. Keltner, Jr. Group

3,687,899

3,253,742

2,776,247

4,165,394
     
Peter L. Malkin Group

3,687,897

3,253,743

2,776,248

4,165,392

TOTALS

$11,063,696

$ 9,761,227

$8,328,742

$12,496,181

 

Year Ended December 31, 2005:
    
Anthony E. Malkin Group

$ 4,165,395

5,436,293

3,649,849

$5,951,839
     
Thomas N. Keltner, Jr. Group

4,165,394

5,436,294

3,649,849

5,951,839
     
Peter L. Malkin Group

4,165,392

5,436,294

3,649,848

5,951,838

TOTALS

$12,496,181

16,308,881

10,949,546

$17,855,516

 

Year Ended December 31, 2006:
    
Anthony E. Malkin Group

$5,951,839

$6,271,303

$5,828,243

$6,394,899
     
Thomas N. Keltner, Jr. Group

5,951,839

6,271,303

5,828,243

6,394,899
     
Peter L. Malkin Group

5,951,838

6,271,303

5,828,244

6,394,897

TOTALS

$17,855,516

$18,813,909

$17,484,730

$19,184,695

 

 

 

See accompanying notes to consolidatedfinancial statements.

 

 

 

 

 

 

 

EMPIRE STATE BUILDING ASSOCIATESL.L.C.

(A Limited Liability Company)

CONSOLIDATED STATEMENTS OF CASH FLOWS
 
Year Ended December 31,
 
2006

2005

2004

Cash flows from operating activities:
 
Net income

$18,813,909

$16,308,881

$ 9,761,227
 
Adjustments to reconcile net income to net 

cash provided by operating activities:
 
Amortization of financing costs

179,629

179,629

179,628
 
Depreciation of building

998,262

998,262

998,264
 
Changes in operating assets andliabilities:
    
Additional rent due from Empire      State

Building Company L.L.C., a related party

33,650

(605,436)

82,752
 
Accounts receivable

(2,700)

-

-
 
Accrued interest payable

-

338,632

(338,632)

Prepaid rent

-

501,564 

- 

Accrued supervisory services, to a related      party

98,849

417,138

167,286

Net cash provided by operating activities

20,121,599

18,138,670

10,850,525
 
Cash flows from financing activities:
    
Change in receivable from participants

(140,477)

(28,544)

195,349
 
Change in restricted cash

(33,775)

(342,010)

355,719
 
Distributions to participants

(17,484,730)

(10,949,546)

(8,328,742)
 
Net cash used in financing activities

(17,658,982)

(11,320,100)

(7,777,674)
    
Net increase in cash and cash equivalents

2,462,617

6,818,570

3,072,851

Cash and cash equivalents, beginning ofyear

19,883,845

13,065,275

9,992,424

CASH AND CASH EQUIVALENTS,

END OF YEAR

$22,346,462

$19,883,845

$13,065,275

Supplemental disclosure of cash flow      information:

Cash paid during the year for interest

$3,987,118

$3,648,486 

$4,336,674

See accompanying notes to consolidatedfinancial statements.

EMPIRE STATE BUILDING ASSOCIATESL.L.C.

(A Limited Liability Company)

NOTES TO CONSOLIDATED FINANCIALSTATEMENTS

 

1. Business Activity andPurchase of Real Estate
Through April 16, 2002, Empire StateBuilding Associates L.L.C. ("Associates") owned the tenant's interest in amaster operating leasehold (the "Master Lease") on the Empire State Building(the "Building"), located at 350 Fifth Avenue, New York, New York. On April 17,2002 Associates acquired, through a wholly-owned limited liability company, thefee title to the Building and to the land thereunder (the "Land"), (together,the "Real Estate"). Associates subleases the property to Empire State BuildingCompany L.L.C. ("Sublessee"). The consolidated financial statements include theaccounts of Empire State Building Associates L.L.C. and, effective April 17,2002, its wholly-owned limited liability company, Empire State Land AssociatesL.L.C. All intercompany accounts and transactions have been eliminated inconsolidation.

Associates operated as a generalpartnership, Empire State Building Associates, until October 1, 2001, when itconverted to a limited liability company and changed to its current name.Ownership percentages in Associates were unchanged by the conversion. Associatescontinues to be treated as a partnership for tax purposes, and the partnership'sincome tax basis of its assets and liabilities carried over to the limitedliability company.

 

2. Summary of SignificantAccounting Policies
a. Cash and Cash Equivalents

Cash and cash equivalents includeinvestments in money market funds and all highly liquid debt instrumentspurchased with a maturity of three months or less when acquired. 

b. Restricted cash Restricted cash atDecember 31, 2006 includes a money market account held at North Fork Bankpursuant to the terms of the mortgage, to be used monthly to satisfy a portionof the mortgage interest obligation.

c. Real Estate and depreciation

The Real Estate was originally carried inthe financial statements at a total cost of $60,484,389, consisting of$57,500,000 for the purchase price, $752,022 for acquisition costs and$2,232,367 representing the unamortized balance of the cost of the Master Leaseon the date the Real Estate was acquired. The cost of the Land was estimated tobe 35.63% of the total cost of the Real Estate, and the Building 64.37%. Underthe terms of the contract of sale, the deed contains language to avoid themerger of the fee estate and the leasehold, although on a consolidated financialstatement basis, Associates incurred no leasehold rent expense after acquiringthe Real Estate. 

The Building is being depreciated on a straight-linebasis using an estimated life of 39 years from April 17, 2002.

EMPIRE STATE BUILDING ASSOCIATESL.L.C.

(A Limited Liability Company)

NOTES TO CONSOLIDATED FINANCIALSTATEMENTS

(Continued)

 
Mortgage Financing Costs and Amortization  
Mortgage financing costs, totaling  $1,796,287, are being amortized ratably over the life of the mortgage.
Amortization expense amounts to $179,628  for each of the next five years subsequent to December 31, 2006.
- Valuation of Long-Lived Assets       Associates periodically assesses the  carrying value of long-lived assets whenever events or changes in  circumstances indicate that their carrying amount may not be recoverable. When  Associates determines that the carrying value of long-lived assets may be  impaired, the measurement of any impairment is based on a projected cash flows  method.    Revenue Recognition      
Basic rental income, as defined in along-term lease, is a fixed minimum annual amount that Associates recordsratably over the year. Additional rent is based on 50% of the net operatingprofit of the Sublessee, as defined, in excess of $1,000,000 for each lease yearending December 31st and is recorded by Associates when such amounts becomedeterminable, at the end of each calendar year.
  Use of Estimates: 
  
In preparing financial statements inconformity with accounting principles generally accepted in the United States ofAmerica, management makes estimates and assumptions that affect the reportedamounts of assets and liabilities and disclosures of contingent assets andliabilities at the date of the financial statements, as well as the reportedamounts of revenues and expenses during the reporting period. Actual resultscould differ from those estimates.

EMPIRE STATE BUILDING ASSOCIATESL.L.C.

(A Limited Liability Company)

NOTES TO CONSOLIDATED FINANCIALSTATEMENTS

(Continued)

 

3. Related Party Transactions -Rent Income
Associates does not operate the Building(See Note 1). It subleases the Building to the Sublessee, a related party (SeeNote 4), pursuant to a net operating sublease dated December 27, 1961, asmodified February 15, 1965. The sublease provides for the same initial term andrenewal options as the leasehold, less one day. In January 1989, the Sublesseeexercised its option to renew the sublease for the first renewal period fromJanuary 4, 1992 to January 4, 2013. The annual minimum basic rent during theremainder of the Sublessee's first renewal term is $6,018,750. The subleaseprovides for three successive renewal options of twenty-one years each, at anannual basic rent of $5,895,625 throughout all subsequent renewal terms.

Additional rent through all renewal terms under thesublease is payable in an amount equal to 50% of the Sublessee's annual netincome, as defined, in excess of $1,000,000. For 2006, 2005 and 2004, Sublesseereported net operating profit of $38,582,657; $33,649,958 and $19,939,086,respectively. Therefore, rent income was comprised as follows:

 
For the years ended December      31,
 
2006

2005

2004

Minimum net basic rent

$ 6,018,750

$ 6,018,750

$ 6,018,750

Additional rent earned

18,791,329

16,324,979

9,469,543
 
$24,810,079

$22,343,729

$15,488,293

Related Party Transactions - Supervisory and Other  Services  

Supervisory and other services are provided toAssociates by its supervisor, Wien & Malkin LLC ("Wien & Malkin" or the"Supervisor"), a related party. Beneficial interests in Associates are helddirectly or indirectly by one or more persons at Wien & Malkin and/or theirfamily members. 

Wien & Malkin LLC, a limited liabilitycompany, succeeded Wien & Malkin LLP, a limited liability partnership, onNovember 30, 2006 without any change in duties, responsibilities, staffing,operation, rights or compensation to it as Supervisor.

Basic fees for supervisory services are $159,417 perannum. Wien & Malkin receives an additional payment equal to 6% ofadditional rent income received by Associates. Fees for supervisory services(including disbursements and cost of regular accounting services) during theyears ended December 31, 2006, 2005 and 2004, totaled $1,126,057, $1,027,208 and$610,069, respectively. For tax purposes, such additional payment is recognizedas a profits interest and the Supervisor is treated as a partner, all withoutmodifying each Participant's distributive share of reportable income and cashdistributions. Distributions in respect of Wien & Malkin's profits interesttotaled $966,640, $867,791 and $450,652 for 2006, 2005 and 2004,respectively.

 

 

EMPIRE STATE BUILDING ASSOCIATESL.L.C.

(A Limited Liability Company)

NOTES TO CONSOLIDATED FINANCIALSTATEMENTS

(Continued)
First Mortgage Payable

To finance the acquisition of the fee title to the RealEstate (Note 1) and certain related costs, Associates obtained a $60,500,000first mortgage with North Fork Bank.

The mortgage matures on May 1, 2012.Monthly payments under the mortgage are interest only at a fixed annual rate of6.5% through maturity. Payments commenced on June 1, 2002, except thatshort-term interest from the closing until April 30, 2002 was due on May 1,2002. The mortgage may be prepaid at any time after 24 months with the paymentof a premium equal to the greater of (a) 1% of the amount prepaid and (b) anamount calculated pursuant to a prepayment formula designed to preserve thebank's yield to maturity. The mortgage is secured by a lien on the Real Estateand Associates' leasehold estate under the Master Lease of the Real Estate.

The estimated fair value of Associates'mortgage debt, based on available market information or other appropriatevaluation methodologies was the carrying value at December 31, 2006 and wasestimated to be $61,282,000 at December 31, 2005.
Number of Participants

There were approximately 2,764, 2,759 and 2,675participants in the participating groups at December 31, 2006, December 31, 2005and 2004, respectively.

Determination of Distributions to Participants 
Distributions to participants during  each year generally reflect the excess of the current year's minimum annual  rent income, plus additional rent income and dividend income earned in the  prior year, over the cash expenses and mortgage requirements of the current  year, adjusted for those cash reserves management judges to be suitable under  the circumstances.
Distributions and Amount of Income per $10,000  Participation Unit

Distributions per $10,000 participationunit during the years ended December 31, 2006, 2005 and 2004, based on 3,300participation units outstanding during each year, consisted of thefollowing:

 
Year ended December 31
 
2006

2005

2004
 
Income

$5,298

$3,318

$2,524
 
Return of capital

0

-0-

-0-
 
TOTAL DISTRIBUTIONS

$5,298

$3,318

$2,524
     
EMPIRE STATE BUILDING ASSOCIATESL.L.C.

(A Limited Liability Company)

NOTES TO CONSOLIDATED FINANCIALSTATEMENTS

(Continued)
Distributions and Amount of Income per $10,000  Participation Unit (continued) 
Net income is computed without regard to  income tax expense since Associates does not itself pay a tax on its income;  instead, any such taxes are paid by the participants in their individual  capacities.
 
Related Party Transactions - Fees 

The accompanying statements of income reflect fees paidor owed to Wien & Malkin, a related party (See Note 4), asfollows:

 
2006

2005

2004

Payments made or accrued

$ -

$ -

$ 1,696
   
 
Contingencies 
Wien & Malkin and Peter L. Malkin, a  member in Associates, were engaged in a proceeding with Sublessee's former  managing agent, Helmsley-Spear, Inc. commenced in 1997, concerning the  management, leasing, and supervision of the property that is subject to the  Lease to Sublessee. In this connection, certain costs for legal and  professional fees and other expenses have been paid and incurred by Wien &  Malkin and Mr. Malkin, and certain costs for filings to terminate such  proceeding may be incurred in the future. Wien & Malkin and Mr. Malkin  have represented that such costs will be recovered only to the extent that (a)  a competent tribunal authorizes payment or (b) an investor voluntarily agrees  that his or her proportionate share be paid. Accordingly, Associates'  allocable share of such costs is as yet undetermined, and Associates has not  provided for the expense and related liability with respect to such costs in  these consolidated financial statements. As a result of the August 29, 2006  settlement agreement which included termination of this proceeding, Associates  will not recognize any gains or losses from this proceeding other than the  possible charges for the aforementioned fees and expenses.
The August 29, 2006 settlement agreement  terminated Helmsley-Spear, Inc. as managing and leasing agent at the property  as of August 30, 2006. CB Richard Ellis has been engaged as the new leasing  agent, and Sublessee will self-manage the property. The $1,834,000 portion of  the contract settlement payment funded from Sublessee's reserves has been  deducted as an expense in computing additional rent income for 2006, so that  Associates has effectively borne one-half of Sublessee's contract settlement  payment expense, or $917,000.
In January 1998, Irving Schneider, who  is one of the controlling principals of Helmsley-Spear, has no record or  beneficial interest in Sublessee and was a participant in Associates, brought  litigation against Sublessee's supervisor, Wien & Malkin, and member,  Peter L. Malkin, claiming misconduct and seeking 

EMPIRE STATE BUILDING ASSOCIATES  L.L.C.

(A Limited Liability Company)

NOTES TO CONSOLIDATED FINANCIAL  STATEMENTS

(Continued)
 

Contingencies (concluded)    

damages and disqualification from  performing services for Sublessee. In March 2002, the court dismissed Mr.  Schneider's claims. Although Mr. Schneider thereafter appealed the dismissal,  the claim was withdrawn prior to 2006 and is no longer pending. 

 
Concentration of Credit Risk

Associates maintains cash balances in twobanks and in two money market funds (Fidelity U.S. Treasury Income Portfolio andNorth Fork Bank) and a distribution account held by Wien & Malkin. Thebalance in each bank is insured by the Federal Deposit Insurance Corporation upto $100,000, and at December 31, 2006 there was an uninsured balance ofapproximately $1,225,927. The cash balances in the Fidelity U.S. Treasury IncomePortfolio and the distribution account held by Wien & Malkin are notinsured. The funds held in the distribution account were paid to theparticipants on January 1, 2007.

 

 

 

 

 

 

 

 

 

SCHEDULE III

EMPIRE STATE BUILDING ASSOCIATESL.L.C.

(A Limited Liability Company)

Real Estate and AccumulatedDepreciation

December 31, 2006

Column

A Description                                                  Land and building situated 

                                                                      at 350 Fifth Avenue, New York, New York.

B Encumbrances-                                         North Fork Bank

Balance at December 31,2006                        $60,500,000
C Initial cost tocompany
Land andbuilding                                            $60,484,389
D Cost capitalized subsequent toacquisition           None 
E Gross amount at which carriedat
close of period (See Note 2 ofNotes to Consolidated Financials Statements)
Land                                                              $21,550,588

Building                                                           38,933,801
Total                                                              $60,484,389 (a)

F Accumulateddepreciation                               $ 4,701,257 (b)

G Date ofconstruction                                     1931

H Dateacquired                                            April 17, 2002

I Life on which depreciation ofbuilding in
latest income statements iscomputed                   39 years
Gross amount of real estate

Balance at January 1,2006           $60,484,389

Purchase of real estate:

F/Y/E 12/31/06 -
Balance at December 31,2006          $60,484,389
The costs for federal income tax purposes are the same

as for financial statement purposes. 

(b) Accumulateddepreciation
Balance at January 1,2006                                $3,702,995

Depreciation:

F/Y/E12/31/06                                                      998,262
Balance at December 31,2006                           $4,701,257
 

 

 

 

 

 

 

 

 

 

 

 

 

EMPIRE STATE BUILDING AND OBSERVATORY

COMPARATIVE COMBINED STATEMENT OFINCOME

YEARS ENDED

DECEMBER 31, 2006

AND

DECEMBER 31, 2005

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Dated:

New York,NY

March 20, 2007 
 

 

 

 

 

 

 

 

 

 

 

Empire State Building Company L.L.C.

60 East 42nd Street

New York, NY 10165

We have audited the accompanyingComparative Combined Statement of Income of Empire State Building andObservatory for the years ended December 31, 2006 and 2005 for the purpose ofdetermining "Net Operating Profit" and "Overage Rent" as those terms are definedin Section 2.05 of Agreement of Sublease dated December 27, 1961. During theyears ended December 31, 2006 and 2005, the entire building, with the exceptionof the Observatory, was operated by Empire State Building Company L.L.C. and theObservatory was operated by Empire State Building, Inc. The Combined Statementof Income is the responsibility of the management of Empire State BuildingCompany L.L.C. and Empire State Building, Inc. Our responsibility is to expressan opinion on the Combined Statement of Income based on our audit.

We conducted our audit in accordance withauditing standards generally accepted in the United States of America. Thosestandards require that we plan and perform the audit to obtain reasonableassurance about whether the Combined Statement of Income is free of materialmisstatement. An audit includes examining, on a test basis, evidence supportingthe amounts and disclosures in the statement. An audit also includes assessingthe accounting principles used and significant estimates made by management, aswell as evaluating the overall presentation of the Combined Statement of Income.We believe that our audit provides a reasonable basis for our opinion.

In our opinion, the accompanyingComparative Combined Statement of Income of Empire State Building andObservatory presents fairly, in all material respects, the Net Operating Profitand Overage Rent for the years ended December 31, 2006 and 2005, in conformitywith Section 2.05 of the aforementioned Agreement dated December 27, 1961.

 

/s/ McGrath Doyle & Phair, CPA********